Is Globalisation an overblown term for a process, which in reality will mean the formation of trade blocs, rather than the whole world as one single market place?

Table of Contents

Introduction

Triad-based multinational corporations or global transnational corporations?

Do trade blocs derogate global trade and reduce globalisation?

Conclusion

Appendix

Bibliography

Figures and Tables

Table 1: Revenues of MNCs in Triad regions

Table 2: Revenues and Sales in Home Region (in %) of Global Companies

Table 3: Merchandise Trade Flows as a Percentage of Originating Triad Bloc / Country GDP (1998)

Figure 1: Asia-Pacific Economic Cooperation (APEC) – 2001

Figure 2: Market Size of Various Trading Blocs, Regions, and Countries

List of Abbreviations

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Introduction

Today everybody talks about globalisation and while some people are looking forward to a globalised and fully integrated world some critics argue that this process leads to a world where the rich become richer and the poor even become poorer. But does globalisation really take place? More and more nations engage in a process called regionalisation. Regional agreements have never been so popular as today and the number of trade blocs increases. Today approximately 170 regional agreements exist and half of them have been established since 1990 (Moore, 2000). Most of the WTO members are at least part in one of them and 50% of worldwide trade occurs between countries belonging to regional agreements (Ruggiero, 2003). Even the WTO as an institution with the objective to foster world trade and to abolish measures that inhibit trade, is increasingly concerned about regionalisation and the growing number of trade blocs which have the potential to circumvent and undermine the aim of the WTO by offering privileges to its members and discriminating non-members (Au and Chan, n.d.). Mike Moore (2000), former WTO Director General puts it as follows: “Is there a risk that regionalism is becoming a stumbling-block, more than a building block, for the new WTO? Draining energy from multilateral negotiations? Fragmenting international trade? And creating a new international disorder characterized by growing rivalries and marginalization and the possibility of hostile blocs?” (Moore, 2000). Hirst and Thompson (1996) argue that globalisation is an overblown term for a process which in reality will mean the formation of trade blocs, rather than the whole world as one single market place.

This essay critically evaluates this argument by considering the pros and cons of the question whether trade blocs replace the concept of globalisation and the world as one single market place. This question will be answered with the help of bifocal perspectives. The second Chapter considers a micro-perspective by evaluating whether companies become increasingly footloose and transnational or whether companies retain a home base with significant sales in their home region or trade bloc. The third Chapter has a more general perspective and assesses the importance of trade blocs and its impact on inter- and intra-trade.

Triad-based multinational corporations or global transnational corporations?

Hirst and Thompson (1996) aim to answer “whether there is such a thing of a globalised economy”. In order to answer this question two contrasting economic ideal types are described: a fully globalised economy and an open international economy. An international economy is a system in which processes and policies are still largely determined by national economies which are the principal entities. More and more trade relations among nations and economic actors lead to an increased integration. (Hirst and Thompson, 1996: 8 - 10) Within this ideal type, multinational corporations (MNC) follow national regulations of the home country and are policed and governed by them. Further, they retain a national home base. (Hirst, 1995: 3) In a globalised economy markets and production become truly global and the “international economic system becomes autonomised and socially disembedded. […] National economies are subsumed and rearticulated into the system by international processes and transactions“. (Hirst and Thompson, 1996: 10)

One of four major consequences which could be observed if a globalised economy is now replacing the international economy identified by Hirst and Thompson (1996) would be that MNCs would transform to transnational corporations (TNCs). They would have no home base and no national identification. TNCs would be able and willing to relocate their operations worldwide where they achieve the most secure or the highest returns. This would create fully globalised companies that source, produce and market on a global basis. Global markets would be served by global operations and companies would be no longer located in one predominant home base. As a result, national states would not be able to control these footloose TNCs which would escape to national states that offer fewer restrictions or better conditions. (Hirst, 1995: 4-5)

According to Ohmae (1990) this process already takes place. Large TNCs are becoming stateless and are centred in the so called Triad which includes North America, Western Europe and a small number of East Asian countries, particularly Japan. He describes the Triad as an interlinked economy in which national borders diminish due to increasing flows of international trade and investment. He cites that although there are still many protectionist barriers, American and European companies, for instance, generate almost 11 percent of Japan’s gross national product and Japanese car manufacturers have a market share of 30 percent in the United States. Furthermore, American companies account for roughly one-fifth of the total European corporate capitalisation. He claims that, policies and regulations imposed by national governments have not so much influence and may only distort or impede allocation decisions by TNCs. Ohmae argues that TNCs respond to regional market needs simply by locating production facilities abroad rather than serving foreign markets from the company’s main location. (Ohmae, 1990)

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